18 October 2023
a company received SCN u/s. 276B for prosecution for delay in deposit of TDS. We have replied to SCN giving reasons for delay and expecting proceedings to drop.
company is thinking of compounding application incase 276B proceeding is not dropped.
I have following queries 1. when to file compounding application - now or later after after our request is rejected ?? 2. Also does issue of SCN mean initiation of proceedings u/s. 276B ? if yes then compunding charges would be 2% pm else 3% pm if yes then will apply for compounding now
06 July 2024
In response to your queries regarding the compounding application under Section 276B of the Income Tax Act:
1. **Timing of Compounding Application:** - It's generally advisable to file a compounding application sooner rather than later, especially if you foresee that the proceedings under Section 276B may not be dropped. This proactive approach demonstrates willingness to resolve the matter expediently. However, ensure that your initial response to the show cause notice (SCN) is well-documented and comprehensive, addressing all reasons for the delay in depositing TDS. If you anticipate that the proceedings under Section 276B might not be dropped despite your response, preparing and filing the compounding application concurrently or shortly after your initial response can be prudent.
2. **Initiation of Proceedings under Section 276B:** - Yes, the issuance of a show cause notice (SCN) typically signifies the initiation of proceedings under Section 276B for prosecution due to delayed deposit of TDS. The compounding charges are specified based on whether the offense is deemed to be intentional or due to gross negligence: - If the delay is due to a bona fide mistake or genuine reasons, compounding charges could be at the rate of 2% per month of the tax amount. - If the delay is intentional or due to gross negligence, compounding charges could be higher, typically at the rate of 3% per month of the tax amount. - Given this, if you believe the delay was inadvertent and your response to the SCN adequately explains this, you may apply for compounding at the 2% per month rate. It's essential to assess the circumstances carefully and ensure that your compounding application provides a clear justification for the delay and demonstrates a willingness to comply with regulatory requirements.
In summary, while it's ideal to resolve matters at the initial stage, filing a compounding application soon after addressing the SCN might be necessary depending on the response received. Ensure all steps are taken in accordance with legal advice and with full compliance to regulatory requirements.
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